Canada’s Flaherty Announces Capital Markets Watchdog Plan

“We came together, putting aside our differences to focus on a common goal,” Canada's Finance Minister Jim Flaherty said in a statement, Photographer: Nelson Ching/Bloomberg

Sept. 19 (Bloomberg) -- Finance Minister Jim Flaherty said
Canada will set up a capital markets regulator with British
Columbia and Ontario, following a seven-year effort to harmonize
rules for the world’s sixth-largest stock market.

Canada and the two provinces will create a Toronto-based
“cooperative” regulator to administer a single set of rules,
Flaherty said today in Ottawa. Other provinces will be invited
to join, he said.

“We came together, putting aside our differences to focus
on a common goal,” Flaherty said in a statement released before
a joint press conference with British Columbia Finance Minister
Michael de Jong and Ontario Finance Minister Charles Sousa. The
three parties want “to modernize our capital markets and to
make them more competitive,” Flaherty said.

Canada is the only major country without a national
securities regulator. Flaherty, arguing the current system of 13
provincial agencies is more costly and reduces the country’s
ability to regulate, has been pushing for a single model in the
face of opposition from provinces such as Quebec and Alberta
since the Conservative government came to power in 2006 .

Quebec and Alberta officials said they weren’t consulted by
Flaherty. Doug Horner, Alberta’s finance minister, said in a
statement that he is committed to protecting the province’s
“interests,” without specifying whether he supports the plan.

“I am only learning of this agreement now and will need
time to review it,” Horner said. “I am surprised that all the
provinces were not consulted on this proposal before it was
announced.”

Legal Challenge

Quebec officials said they oppose today’s move and may
mount a legal challenge.

“The current system that supports the presence of a large
financial sector in Montreal and Quebec is jeopardized,”
Finance Minister Nicolas Marceau said in comments broadcast by
CBC Television. He said a common regulator may shift power from
Montreal, the French-speaking province’s biggest city and home
to the country’s derivatives market. “You can imagine those
firms would be attracted by a common regulator in Toronto.”

Flaherty said he’s hopeful other provinces will “see the
wisdom of participating.”

The federal finance minister’s original plan for a national
regulator, released in 2010, suffered a setback when the Supreme
Court of Canada ruled a year later the proposal was
unconstitutional because it encroached on provincial
jurisdiction. The case turned on whether the federal government
has the authority to create a national regulator under a section
of the constitution that gives Parliament the power to regulate
trade and commerce.

‘Great News’

Today’s announcement is “great news,” Bradley Meiers,
head of debt syndication at Toronto-Dominion Bank’s TD
Securities, said in an e-mailed response to questions. “It
needed to be done. I think it might be tough to get every
province to sign on.”

The piecemeal effort may be more successful than Flaherty’s
previous attempt, said Ian Russell, chief executive officer of
the Investment Industry Association of Canada.

“This is a completely different approach,” Russell said
in a telephone interview. In the past, Flaherty was “trying to
get the whole group inside the tent before they started, and we
never started, we never got anywhere.”

The regulator will administer both provincial and federal
legislation, according to the statement. A council of ministers
will oversee the system. Sousa said the new body will eventually
replace the Ontario Securities Commission.

“I think it’s needed,” said Thomas Caldwell, chairman of
Caldwell Securities Ltd., whose firm manages about C$1 billion
($975 million). “I think it is a step forward, but the devil is
in the detail and it’s how you implement.”

The value of all the listed stocks in Canada totals $2.07
trillion, according to data compiled by Bloomberg.